Lecture 22: The Environment and Development

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1 Lecture 22: The Environment and DevelopmentEconomics and the Environment

2 Environment and Development: The Basic IssuesThe concept of sustainable development, and linkages between the environmentSustainability: a development path is sustainable ‘if and only if the stock of overall capital assets remains constant or rises over time’Environmental accounting: the preservation or loss of valuable environmental resources should be factored into estimates of economic growth and well-being

4 Population, Resources, and the EnvironmentPerception that there is a limited population size which can be sustained with the earth’s finite resourcesPotential for new technologies may alleviate the strain on the resourcesGrowing populations in the LDC have led to land, water, and wood shortages in rural areas, and sanitation and water in urban areasIncreasing populations contributes to accelerated degradation of resources

5 Poverty and the EnvironmentRelationship between environmental destruction and high fertility which are both out growths of absolute povertyPreventing environmental degradation is linked to providing institutional support to the poorInsecure land rights, lack of credit and inputs and absence of information often prevent poor from marking resource augmenting investments which would help preserve the environment

6 Growth versus the EnvironmentQuestion of whether or not it is possible to achieve growth without environmental damageThe worst environmental damage by the richest billion and poorest billion of the worldTherefore idea that increasing incomes of the poor would decrease environmental damageIncreasing consumption while keeping environmental degradation low is difficult

7 Rural Development and the EnvironmentGrowing LDC populations will require food production in LDCs to double by 2010Land in LDC are already being overworked by the existing populationIncreased accessibility of agricultural inputs and introduction of sustainable methods of farming are need to decrease destructive patterns of land use

8 Urban Development and the EnvironmentRapid population increase and rural-urban migration has led to increasing urban population growthStrain on existing urban water supplies and sanitation facilities, high costs of urban crowdingResulting in health hazards as circumstances allow for epidemics and health crisesResearch reveals that urban environment tends to worsen at a faster rate than urban population size increases so that the marginal environmental cost of additional residents rises over time

9 The Global EnvironmentAs world population grows and incomes rise, net environmental degradation will worsenEfficient use of resources can be undertaken via population abatement technology and resource managementTrade-offs between output and environmental improvements will be necessary

10 The Scope of Environmental DegradationEnvironmental challenges in developing countries will be caused by povertyThese are common where households lack economic alternative to unsustainable patterns of livingThese include health hazards created by:Lack of access to clean water and sanitationIndoor air pollutionDeforestationSevere soil degradation

11 Principal Health and Productivity Consequences of Environmental DamageSee Todaro: Ch. 11 Table 11.1Example:Water pollution and scarcityMore than 2m deaths, and billions of illnesses a yearEffect on productivity: declining fisheries, rural household time and municipal costs of providing safe water

12 Traditional Economic Models of the EnvironmentPrivately Owned Resources (11.1)Static Efficiency in Resource AllocationWhere total net benefit is maximized when the marginal cost of producing/extracting one more unit of the resource is equal to its marginal benefit

13 Optimal Resource Allocation Over Time (11.2)Price of a good that is being rationed inter- temporally must equate the present value of the marginal net benefit of the last unit consumed in each periodIndifferent between obtaining the next until today or tomorrowEfficient allocation of resources over time must allow for scarcity rent to be collected by owner

14 Common Property Resources and Misallocation (11.3)Potential profits or scarcity rents will be competed awayMisallocation or resources under a common property systemImplication of model is the where possible privatization of resources will lead to an efficient allocation of resourcesExample: relationship between the returns to labor on a given piece of landScarcity rent: Green area